[FORM
OF SENIOR CONVERTIBLE NOTE]

     

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR 144A, AS
APPLICABLE, UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.  ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF.  THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

     

    A-Power
Energy Generation Systems, Ltd.

     

    SENIOR
CONVERTIBLE NOTE

     

    
      	
              Issuance
      Date:  June 19, 2009

            	
              Original
      Principal Amount: U.S. $[__________]

            


    

    


    FOR VALUE RECEIVED, A-Power
Energy Generation Systems, Ltd., a Company organized under the laws of the
British Virgin Islands (the "Company"), hereby promises to
pay to ________ or registered assigns (the "Holder") the amount set out
above as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the "Principal") when due, whether
upon the Maturity Date (as defined below), acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest ("Interest") on any outstanding
Principal at the applicable Interest Rate from the date set out above as the
Issuance Date (the "Issuance Date") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Maturity
Date, acceleration, conversion, redemption or otherwise (in each case in
accordance with the terms hereof).  This Senior Convertible Note
(including all Senior Convertible Notes issued in exchange, transfer or
replacement hereof, this "Note") is one of an issue of
Senior Convertible Notes issued pursuant to the Securities Purchase Agreement on
the Closing Date (collectively, the "Notes" and such other Senior
Convertible Notes, the "Other Notes").  Certain
capitalized terms used herein are defined in Section 31.

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    (1)           PAYMENTS OF
PRINCIPAL.  On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal, accrued and
unpaid Interest and accrued and unpaid Late Charges on such Principal and
Interest.  The "Maturity Date" shall be June 19, 2014,
as may be extended at the option of the Holder (i) in the event that, and for so
long as, an Event of Default (as defined in Section 4(a)) shall have occurred
and be continuing on the Maturity Date (as may be extended pursuant to this
Section 1) or any event shall have occurred and be continuing on the Maturity
Date (as may be extended pursuant to this Section 1) that with the passage of
time and the failure to cure would result in an Event of Default and (ii) through the
date that is ten (10) Business Days after the consummation of a Change of
Control in the event that a Change of Control is publicly announced or a Change
of Control Notice (as defined in Section 5(b)) is delivered prior to the
Maturity Date.  Other than as specifically permitted by this Note, the
Company may not prepay any portion of the outstanding Principal, accrued and
unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if
any.

     

    (2)           INTEREST; INTEREST
RATE.  (a) Interest on this Note shall commence accruing on the
Issuance Date and shall be computed on the basis of a 360-day year and twelve
30-day months and
shall be payable in arrears quarterly on each January 1, April 1, July 1 and
October 1 of each year after the Issuance Date (each, an "Interest Date") with the first Interest
Date being July 1, 2009.  Interest shall be payable on each Interest
Date, to the record holder of this Note on the applicable Interest Date, in
Common Shares ("Interest
Shares") so long as there has been no Equity Conditions Failure; provided
however, that the Company may, at its option following notice to the Holder, pay
Interest on any Interest Date in cash ("Cash Interest") or in a
combination of Cash Interest and Interest Shares.  The Company shall
deliver a written notice (each, an "Interest Election Notice") to
the Holder on or prior to the applicable Interest Notice Due Date (the date such
notice is delivered to the Holder of Notes, the "Interest Notice Date") which
notice (i) either (A) confirms that Interest to be paid on such Interest Date
shall be paid entirely in Interest Shares or (B) elects to pay Interest as Cash
Interest or a combination of Cash Interest and Interest Shares and specifies the
amount of Interest that shall be paid as Cash Interest and the amount of
Interest, if any, that shall be paid in Interest Shares and (ii) certifies that
there has been no Equity Conditions Failure.  If the Equity Conditions
are not satisfied as of the Interest Notice Date, then unless the Company has
elected to pay such Interest as Cash Interest, the Interest Notice shall
indicate that unless the Holder waives the Equity Conditions, the Interest shall
be paid as Cash Interest.  If the Equity Conditions were satisfied as
of the Interest Notice Date but the Equity Conditions are no longer satisfied at
any time prior to the Interest Date, the Company shall provide the Holder a
subsequent notice to that effect indicating that unless the Holder waives the
Equity Conditions, the Interest shall be paid in cash.  Interest to be
paid on an Interest Date in Interest Shares shall be paid in a number of fully
paid and nonassessable Common Shares (rounded to the nearest whole share in
accordance with Section 3(a)) equal to the quotient of (1) the amount of
Interest payable on such Interest Date less any Cash Interest paid on such
Interest Date and (2) the Interest Conversion Price in effect on the applicable
Interest Date.  Notwithstanding anything herein to the contrary,
contemporaneously with the execution of this Note, the Company has paid or
prepaid $__________ in Interest due hereunder (the "Pre-paid Interest") pursuant
to the Securities Purchase Agreement, which Pre-paid Interest shall be applied
to pay accrued and unpaid Interest due on the Interest Date commencing on July
1, 2009 and each subsequent Interest Date until the Pre-paid Interest has been
applied in full.

     

    
      
         


      

      
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    (b)           When
any Interest Shares are to be paid on an Interest Date, the Company shall (i)
(A) provided that the Company's transfer agent (the "Transfer Agent") is
participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, credit such aggregate number of Interest Shares to
which the Holder shall be entitled to the Holder's or its designee's balance
account with DTC through its Deposit Withdrawal Agent Commission system, or (B)
if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver on the applicable Interest Date, to the
address set forth in the register maintained by the Company for such purpose
pursuant to the Securities Purchase Agreement or to such address as specified by
the Holder in writing to the Company at least two (2) Business Days prior to the
applicable Interest Date, a certificate, registered in the name of the Holder or
its designee, for the number of Interest Shares to which the Holder shall be
entitled and (ii) with respect to each Interest Date, pay to the Holder, in cash
by wire transfer of immediately available funds, the amount of any Cash
Interest. 

     

    (c)           Prior
to the payment of Interest on an Interest Date, Interest on this Note shall
accrue at the Interest Rate and be payable on each Conversion Date in accordance
with Section 3(c)(i).  From and after the occurrence and during the
continuance of an Event of Default, the Interest Rate shall be increased to
fifteen percent (15%).  In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Interest as
calculated and unpaid at such increased rate during the continuance of such
Event of Default shall continue to apply to the extent relating to the days
after the occurrence of such Event of Default through and including the date of
cure of such Event of Default.  The Company shall pay any and all
transfer, stamp and similar taxes (other than income and similar taxes) that are
required to be paid with respect to the issuance and delivery of Interest
Shares.

     

    (3)           CONVERSION OF
NOTES.  This Note shall be convertible into shares of the
Company's Common Shares, par value $0.0001 per share (the "Common Shares"), on the terms
and conditions set forth in this Section 3.

     

    (a)           Conversion
Right.  Subject to the provisions of Section 3(d), at any time
or times on or after the Shareholder Approval Date (as defined in the Securities
Purchase Agreement), the Holder shall be entitled to convert any portion of the
outstanding and unpaid Conversion Amount (as defined below) into fully paid and
nonassessable Common Shares in accordance with Section 3(c), at the Conversion
Rate (as defined below).  The Company shall not issue any fraction of
a Common Share upon any conversion.  If the issuance would result in
the issuance of a fraction of a Common Share, the Company shall round such
fraction of a Common Share up to the nearest whole share.  The Company
shall pay any and all transfer, stamp and similar taxes (other than income and
similar taxes) that are required to be paid with respect to the issuance and
delivery of Common Shares upon conversion of any Conversion Amount.

     

    (b)           Conversion
Rate.  The number of Common Shares issuable upon conversion of
any Conversion Amount pursuant to Section 3(a) shall be determined by dividing
(x) such Conversion Amount by (y) the Conversion Price (the "Conversion
Rate").

     

    
      
         


      

      
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    (i)           "Conversion Amount" means the
portion of the Principal to be converted, redeemed or otherwise with respect to
which this determination is being made.

     

    (ii)           "Conversion Price" means, as of
any Conversion Date (as defined below) or other date of determination, $10.637,
subject to adjustment as provided herein.

     

    (c)           Mechanics of
Conversion.

     

    (i)           Optional
Conversion.  To convert any Conversion Amount into Common
Shares on any date (a "Conversion Date"), the Holder
shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior
to 11:59 p.m., New York time, on such date, a copy of an executed notice of
conversion in the form attached hereto as Exhibit I (the "Conversion Notice") to the
Company and the Transfer Agent and (B) if required by Section 3(c)(iii),
surrender this Note to a common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or
destruction).  On or before the first (1st) Trading Day following the
date of receipt of a Conversion Notice, the Company shall transmit by facsimile
a confirmation of receipt of such Conversion Notice to the Holder and the
Transfer Agent.  On or before the third (3rd)
Trading Day following the date of receipt of a Conversion Notice (the "Share Delivery Date"), the Company shall (x)
provided that the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program and such Common Shares do not require the placement
of any legends restricting transfer of such Common Shares, credit such aggregate
number of Common Shares to which the Holder shall be entitled to the Holder's or
its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system or (y) if (I) the Transfer Agent is not participating in the
DTC Fast Automated Securities Transfer Program or (II) such Common Shares
require the placement of legends restricting the transfer of such Common Shares
as required by Section 2(g) of the Securities Purchase Agreement, issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the aggregate number
of Common Shares to which the Holder shall be entitled, which certificate shall,
in the case of clause (II), bear a legend in accordance with Section 2(g) of the
Securities Purchase Agreement.  If this Note is physically surrendered
for conversion as required by Section 3(c)(iii) and the outstanding Principal of
this Note is greater than the Principal portion of the Conversion Amount being
converted, then the Company shall as soon as practicable and in no event later
than three (3) Business Days after receipt of this Note and at its own expense,
issue and deliver to the holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal not converted.  The Person or
Persons entitled to receive the Common Shares issuable upon a conversion of this
Note shall be treated for all purposes as the record holder or holders of such
Common Shares on the Conversion Date.  In addition to the foregoing,
on such Share Delivery Date, the sum of (I) the Make-Whole Amount and (II) any
accrued and unpaid Interest and Late Charges, if any, (the "Additional Conversion
Obligations") on such Conversion Amount and Interest shall be paid to the
Holder in Common Shares ("Additional Conversion Shares")
so long as there has been no Equity Conditions Failure; provided however, that
the Company may, at its option following notice to the Holder, pay such
Additional Conversion Obligations on any Conversion Date in cash ("Cash Additional Conversion
Payment"), or in a combination of a Cash Additional Conversion Payment
and Additional Conversion Shares.  The Company shall deliver a written
notice (each, an "Additional
Conversion Election Notice") to the Holder on or prior to the applicable
Additional Conversion Notice Due Date (the date such notice is delivered to the
Holder, the "Additional
Conversion Notice Date") which notice (i) either (A) confirms that
Additional Conversion Obligations to be paid on such Conversion Date shall be
paid entirely in Additional Conversion Shares or (B) elects to pay the
Additional Conversion Obligations as a Cash Additional Conversion Payment or a
combination of a Cash Additional Conversion Payment and Additional Conversion
Shares and specifies the amount of the Additional Conversion Obligations, if
any, that shall be paid as a Cash Additional Conversion Payment and the amount
of Additional Conversion Obligations, if any, that shall be paid in Additional
Conversion Shares and (ii) certifies that there has been no Equity Conditions
Failure.  If the Equity Conditions are not satisfied as of the
Additional Conversion Notice Date, then unless the Company has elected to pay
such Additional Conversion Obligations as a Cash Additional Conversion Payment,
the Additional Conversion Notice shall indicate that unless the Holder waives
the Equity Conditions, the Additional Conversion Obligations shall be paid as a
Cash Additional Conversion Payment.  If the Equity Conditions were
satisfied as of the Additional Conversion Notice Date but the Equity Conditions
are no longer satisfied at any time prior to the Share Delivery Date, the
Company shall provide the Holder a subsequent notice to that effect indicating
that unless the Holder waives the Equity Conditions, the Additional Conversion
Obligations shall be paid in cash.  The Additional Conversion
Obligations to be paid on such Share Delivery Date in Additional Conversion
Shares shall be paid in a number of fully paid and nonassessable Common Shares
(rounded to the nearest whole share in accordance with Section 3(a)) equal to
the quotient of (1) the amount of Additional Conversion Obligations payable on
the applicable Conversion Date less any Cash Additional Conversion Payment paid
on the applicable Conversion Date and (2) the Interest Conversion Price in
effect on the applicable Conversion Date.

     

    
      
         


      

      
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    (ii)           Company's Failure to Timely
Convert.  If the Company shall fail to issue a certificate to
the Holder or credit the Holder's balance account with DTC, as applicable, for
such number of Common Shares to which the Holder is entitled upon conversion of
any Conversion Amount on or prior to the date which is three (3) Trading Days
after the Conversion Date (a "Conversion Failure"), and if
on or after such Conversion Failure the Holder purchases (in an open market
transaction or otherwise) Common Shares to deliver in satisfaction of a sale by
the Holder of Common Shares issuable upon such conversion that the Holder
anticipated receiving from the Company (a "Buy-In"), then the Company
shall, within three (3) Trading Days after the Holder's request and in the
Holder's discretion, either (x) pay cash to the Holder in an amount equal to the
Holder's total purchase price (including brokerage commissions and other
reasonable out-of-pocket brokerage expenses, if any) for the Common Shares so
purchased (the "Buy-In
Price"), at which point the Company's obligation to issue and deliver a
certificate to the Holder (and to issue such Common Shares) or credit the
Holder's balance account with DTC for such Common Shares shall terminate, or (y)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Shares or credit such Holder's balance
account with DTC and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (I) such number of Common Shares,
times (II) the Closing Bid Price on the Conversion Date.

     

    
      
         


      

      
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    (iii)           Registration;
Book-Entry.  The Company shall maintain a register (the "Register") for the recordation
of the names and addresses of the holders of each Note and the principal amount
of the Notes held by such holders (the "Registered
Notes").  The entries in the Register shall be conclusive and
binding for all purposes absent manifest error.  The Company and the
holders of the Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including, without limitation,
the right to receive payments of Principal and Interest hereunder,
notwithstanding notice to the contrary.  A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register.  Upon its receipt of a request to assign or sell
all or part of any Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Notes in the same aggregate principal amount as the principal amount
of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 18.  Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Company unless (A) the full Principal amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note.  The
Holder and the Company shall maintain records showing the Principal, Interest
and Late Charges, if any, converted and the dates of such conversions or shall
use such other method, reasonably satisfactory to the Holder and the Company, so
as not to require physical surrender of this Note upon conversion.

     

    (iv)           Pro Rata Conversion;
Disputes.  In the event that the Company receives a Conversion
Notice from more than one holder of Notes for the same Conversion Date and the
Company can convert some, but not all, of such portions of the Notes submitted
for conversion, the Company, subject to Section 3(d), shall convert from each
holder of Notes electing to have Notes converted on such date a pro rata amount
of such holder's portion of its Notes submitted for conversion based on the
principal amount of Notes submitted for conversion on such date by such holder
relative to the aggregate principal amount of all Notes submitted for conversion
on such date.  In the event of a dispute as to the number of Common
Shares issuable to the Holder in connection with a conversion of this Note, the
Company shall issue to the Holder the number of Common Shares not in dispute and
resolve such dispute in accordance with Section 23.

     

    
      
         


      

      
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    (d)           Limitations on
Conversions.  The Company shall not effect any conversion of
this Note or other issuance of Common Shares hereunder, and the Holder of this
Note shall not have the right to convert any portion of this Note pursuant to
Section 3(a), to the extent that after giving effect to such conversion or
issuance, the Holder (together with the Holder's affiliates) would beneficially
own in excess of 4.99% (the "Maximum Percentage") of the
number of Common Shares outstanding immediately after giving effect to such
conversion.  For purposes of the foregoing sentence, the aggregate
number of Common Shares beneficially owned by the Holder and its affiliates
shall include the number of Common Shares issuable upon conversion of this Note
with respect to which the determination of such sentence is being made, but
shall exclude the number of Common Shares which would be issuable upon (A)
conversion of the remaining, nonconverted portion of this Note beneficially
owned by the Holder or any of its affiliates and (B) exercise or conversion of
the unexercised or nonconverted portion of any other securities of the Company
beneficially owned by the Holder or any of its affiliates (including, without
limitation, any Other Notes or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein.  Except as
set forth in the preceding sentence, for purposes of this Section 3(d),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").  For
purposes of this Section 3(d), in determining the number of outstanding Common
Shares, the Holder may rely on the number of outstanding Common Shares as
reflected in (1) the Company's most recent Form 20-F, Report of Foreign Issuer
on Form 6-K of the Company or other public filing with the SEC, as the case may
be, (2) a more recent public announcement by the Company or (3) any other more
recent notice by the Company or the Transfer Agent setting forth the number of
Common Shares outstanding.  For any reason at any time, upon the
written or oral request of the Holder, the Company shall within two (2) Business
Days confirm in writing to the Holder the number of Common Shares then
outstanding.  In any case, the number of outstanding Common Shares
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Note, by the Holder or its affiliates
since the date as of which such number of outstanding Common Shares was
reported.  By written notice to the Company, the Holder may from time
to time increase or decrease the Maximum Percentage to any other percentage not
in excess of 9.99% specified in such notice; provided that (x) any such increase
will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (y) any such increase or
decrease will apply only to the Holder and not to any other holder of
Notes.  The provisions of this paragraph shall be construed and
implemented in a manner other than in strict conformity with the terms of this
Section 3(d) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended beneficial ownership limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation.

     

    (4)           RIGHTS UPON EVENT OF
DEFAULT.

     

    (a)           Event of
Default.  Each of the following events shall constitute an
"Event of
Default":

     

    (i)           the
suspension from trading or failure of the Common Shares to be listed on an
Eligible Market for a period of seven (7) consecutive Trading Days or for more
than an aggregate of fifteen (15) Trading Days in any 365-day
period;

     

    (ii)           the
Company's (A) failure to cure a Conversion Failure by delivery of the required
number of Common Shares within ten (10) Business Days after the applicable
Conversion Date or (B) notice, written or oral, to any holder of the Notes,
including by way of public announcement or through any of its agents, at any
time, of its intention not to comply with a request for conversion of any Notes
into Common Shares that is tendered in accordance with the provisions of the
Notes, other than pursuant to Section 3(d);

     

    
      
         


      

      
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    (iii)           at
any time following the tenth (10th)
consecutive Business Day that the Holder's Authorized Share Allocation is less
than the number of Common Shares that the Holder would be entitled to receive
upon a conversion of the full Conversion Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or
otherwise);

     

    (iv)           the
Company's failure to pay to the Holder any amount of Principal, Interest, Late
Charges or other amounts when and as due under this Note (including, without
limitation, the Company's failure to pay any redemption amounts hereunder) or
any other Transaction Document (as defined in the Securities Purchase Agreement)
to which the Holder is a party, except, in the case of a failure to pay
Interest, Late Charges and/or other amounts (other than Principal) under this
Note when and as due, in which case only if such failure continues for a period
of at least five (5) Business Days;

     

    (v)           any
defaults in the payment when due, after the expiration of any applicable grace
period, of principal of, or interest on, Indebtedness of the Company or any of
its Subsidiaries (as defined in Section 3(a) of the Securities Purchase
Agreement), if such defaults relate to Indebtedness that in the aggregate has a
principal amount then outstanding of $1,000,000 or more, other than with respect
to any Other Notes;

     

    (vi)           the
Company or any of its Subsidiaries, pursuant to or within the meaning of Title
11, U.S. Code, or any similar Federal, foreign or state law for the relief of
debtors (collectively, "Bankruptcy Law"), (A)
commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a
receiver, trustee, assignee, liquidator or similar official (a "Custodian"), (D) makes a
general assignment for the benefit of its creditors or (E) admits in writing
that it is generally unable to pay its debts as they become due;

     

    (vii)          a
court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that (A) is for relief against the Company or any of its Subsidiaries in an
involuntary case, (B) appoints a Custodian of the Company or any of its
Subsidiaries or (C) orders the liquidation of the Company or any of its
Subsidiaries;

     

    (viii)         a
final judgment or judgments for the payment of money aggregating in excess of
$1,000,000 are rendered against the Company or any of its Subsidiaries and which
judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty (60)
days after the expiration of such stay; provided, however, that any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $1,000,000 amount set forth above so long as
the Company provides the Holder a written statement from such insurer or
indemnity provider (which written statement shall be reasonably satisfactory to
the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment;

     


    
      
         


      

      
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    (ix)           other
than as specifically set forth in another clause of this Section 4(a), the
Company breaches any representation, warranty, covenant or other term or
condition of any Transaction Document, except, in the case of a breach of a
covenant or other term or condition of any Transaction Document which is
curable, only if such breach continues for a period of at least fifteen (15)
consecutive Business Days;

     

    (x)           the
Company, any of its Subsidiaries or Mr. Lu (as defined in the Securities
Purchase Agreement) shall fail to perform or comply with any covenant or
agreement contained in the Security Documents (as defined in the Securities
Purchase Agreement) or the Put Agreements (as defined in the Securities Purchase
Agreement), in any material respect, including, without limitation, Mr. Lu's
obligation to deliver additional Common Shares to the Collateral Agent (as
defined in the Securities Purchase Agreement) in accordance with the Pledge
Agreement (as defined in the Securities Purchase Agreement) and to exchange any
Note and/or any Warrant into Common Shares pursuant to the terms of the Put
Agreements;

     

    (xi)           any
material provision of any Security Document (as determined by the Collateral
Agent) or any Put Agreement shall at any time for any reason (other than
pursuant to the express terms thereof) cease to be valid and binding on or
enforceable against the parties thereto, or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall be
commenced by Mr. Lu, the Company or any Subsidiary or any governmental authority
having jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or Mr. Lu, the Company or any Subsidiary shall deny in
writing that it has any liability or obligation purported to be created under
any Security Document or any Put Agreement;

     

    (xii)           the
Security Documents shall for any reason fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien in favor of the Collateral Agent for the benefit of the
holders of the Notes on the Common Shares or other assets purported to be
covered thereby;

     

    (xiii)         any
breach or failure in any respect to comply with either of Sections 8 or 14 of
this Note; or

     

    (xiv)         any
Event of Default (as defined in the Other Notes) occurs with respect to any
Other Notes.

     

    
      
         


      

      
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    (b)           Redemption
Right.  Upon the occurrence of an Event of Default with respect
to this Note or any Other Note, the Company shall within one (1) Business Day
deliver written notice thereof via facsimile and overnight courier (an "Event of Default Notice") to
the Holder.  At any time after the earlier of the Holder's receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default,
the Holder may require the Company to redeem (an "Event of Default Redemption")
all or any portion of this Note by delivering written notice thereof (the "Event of Default Redemption
Notice" and the date thereof, the "Event of Default Redemption Notice
Date") to the Company, which Event of Default Redemption Notice shall
indicate the Conversion Amount of this Note the Holder is electing to require
the Company to redeem.  Each portion of this Note subject to
redemption by the Company pursuant to this Section 4(b) shall be redeemed by the
Company at a price equal to the greater of (i) the product of (A) the Conversion
Amount to be redeemed together with any accrued and unpaid Interest and Late
Charges, if any, on such Conversion Amount and Interest through the Event of
Default Redemption Date (as defined below) and (B) the Redemption
Premium and (ii) the sum of (x) the product of (A) the Conversion Rate with
respect to such Conversion Amount in effect at such time as the Holder delivers
an Event of Default Redemption Notice and (B) the greatest Closing Sale Price of
the Common Shares during the period beginning on the date immediately preceding
such Event of Default and ending on the date the Holder delivers the Event of
Default Redemption Notice and (y) any Make Whole Amount and accrued and unpaid
Interest on the Conversion Amount and Late Charges, if any, on such Conversion
Amount and Interest through the Event of Default Redemption Date (the "Event of Default Redemption
Price").  Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 12.  To the extent
redemptions required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments.  The parties
hereto agree that in the event of the Company's redemption of any portion of the
Note under this Section 4(b), the Holder's damages would be uncertain and
difficult to estimate because of the parties' inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder.  Accordingly, any Redemption
Premium due under this Section 4(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder's actual loss of its investment
opportunity and not as a penalty.

     

    (5)           RIGHTS UPON FUNDAMENTAL
TRANSACTION AND CHANGE OF CONTROL.

     

    (a)           Assumption.  The
Company shall not enter into or be party to a Fundamental Transaction unless
(i)  the Successor Entity (if a Person other than the Company (with the
Company being deemed to automatically so assume)) assumes in writing all of the
obligations of the Company under this Note and the other Transaction Documents
in accordance with the provisions of this Section 5(a) pursuant to written
agreements in form and substance reasonably satisfactory to the Required Holders
and approved by the Required Holders prior to such Fundamental Transaction
(which approval shall not be unreasonably withheld), including agreements to
deliver to each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Notes then outstanding held by such holder, having similar conversion
rights and having similar ranking to the Notes, and satisfactory to the Required
Holders and (ii) the Successor Entity (or its Parent Entity if such assumption
is effected by the Parent Entity) is a publicly traded corporation whose common
stock is quoted or listed on an Eligible Market.  Upon the occurrence
of any Fundamental Transaction, the Successor Entity (if a Person other than the
Company (with the Company being deemed to automatically so assume)) shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note referring to the "Company"
shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Note with the same effect as if such Successor Entity had been named
as the Company herein.  Upon consummation of the Fundamental
Transaction, the Successor Entity (if a Person other than the Company (with the
Company being deemed to automatically so assume)) shall deliver to the Holder
confirmation that there shall be issued upon conversion of this Note at any time
after the consummation of the Fundamental Transaction, in lieu of the Common
Shares of the Company (or other securities, cash, assets or other property)
issuable upon the conversion of the Notes prior to such Fundamental Transaction,
such shares of the publicly traded common stock (or their equivalent) of the
Successor Entity (including its Parent Entity), as adjusted in accordance with
the provisions of this Note.  The provisions of this Section shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of
this Note.

     

    
      
         


      

      
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    (b)           Redemption
Right.  No sooner than fifteen (15) days nor later than ten
(10) days prior to the consummation of a Change of Control, but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a "Change of Control Notice").  At any
time during the period beginning after the Holder's receipt of a Change of
Control Notice and ending twenty (20) Trading Days after the date of the
consummation of such Change of Control, the Holder may require the Company to
redeem (a "Change of Control
Redemption") all or any portion of this Note by delivering written notice
thereof ("Change of Control
Redemption Notice", and the date thereof, the "Change of Control Redemption Notice
Date") to the Company, which Change of Control Redemption Notice shall
indicate the Conversion Amount the Holder is electing to require the Company to
redeem.  The portion of this Note subject to redemption pursuant to
this Section 5(b) shall be redeemed by the Company in cash at a price equal to
the greater of (i) the sum of (A) 110% of the Conversion Amount being redeemed,
(B) the Make-Whole Amount, and (C) any accrued and unpaid Interest and Late
Charges, if any, on such Conversion Amount and Interest through the Change of
Control Redemption Date (as defined below) and (ii) solely if an Equity
Conditions Failure has occurred at any time during the period commencing with
the Change of Control Redemption Notice Date and ending as of the Change of
Control Redemption Date, the product of (A) the Conversion Amount being redeemed
together with the Make-Whole Amount and any accrued and unpaid Interest and Late
Charges, if any, on such Conversion Amount and Interest through the applicable
Change of Control Redemption Date multiplied by (B) the quotient determined by
dividing (1) the greatest Closing Sale Price of the Common Shares during the
period beginning on the date immediately preceding the earlier to occur of (x)
the consummation of the Change of Control and (y) the public announcement of
such Change of Control and ending on the Change of Control Redemption Notice
Date by (2) the Conversion Price (the "Change of Control Redemption
Price").  Redemptions required by this Section 5 shall be made
in accordance with the provisions of Section 12 and shall have priority to
payments to shareholders in connection with a Change of Control.  To
the extent redemptions required by this Section 5(b) are deemed or determined by
a court of competent jurisdiction to be prepayments of the Note by the Company,
such redemptions shall be deemed to be voluntary
prepayments.  Notwithstanding anything to the contrary in this Section
5, but subject to Section 3(d), until the Change of Control Redemption Price is
paid in full, the Conversion Amount submitted for redemption under this Section
5(c) (together with any interest thereon) may be converted, in whole or in part,
by the Holder into Common Shares pursuant to Section 3 (or in the event the
Conversion Date is after the consummation of the Change of Control, such
securities or other assets received by the holders of Common Shares in
connection with the consummation of such Change of Control in such amounts as
the Noteholder would have been entitled to receive had such Note been converted
immediately prior to such Change of Control).  The parties hereto
agree that in the event of the Company's redemption of any portion of the Note
under this Section 5(b), the Holder's damages would be uncertain and difficult
to estimate because of the parties' inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder.  Accordingly, any Change of Control
redemption premium due under this Section 5(b) is intended by the parties to be,
and shall be deemed, a reasonable estimate of the Holder's actual loss of its
investment opportunity and not as a penalty.

     

    
      
         


      

      
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    (6)           RIGHTS UPON CERTAIN
ISSUANCES OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

     

    (a)           Purchase
Rights.  If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase shares, warrants,
securities or other property pro rata to the record holders of any class of
Common Shares (other than Pill Rights) (the "Purchase Rights"), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of Common Shares acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Shares are to be determined for the grant, issue or sale of such Purchase
Rights.

     

    (b)           Other Corporate
Events.  In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of Common Shares are entitled to receive securities or
other assets with respect to or in exchange for Common Shares (a "Corporate Event"), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon a conversion of this Note, at the Holder's option, (i)
in addition to the Common Shares receivable upon such conversion, such
securities or other assets to which the Holder would have been entitled with
respect to such Common Shares had such Common Shares been held by the Holder
upon the consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the Common Shares otherwise receivable upon such conversion or exchange, such
securities or other assets received by the holders of Common Shares in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to Common
Shares) at a conversion rate for such consideration commensurate with the
Conversion Rate.  Provision made pursuant to the preceding sentence
shall be in a form and substance satisfactory to the Required
Holders.  The provisions of this Section shall apply similarly and
equally to successive Corporate Events and shall be applied without regard to
any limitations on the conversion or redemption of this Note.

     

    
      
         


      

      
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    (7)           RIGHTS UPON ISSUANCE OF
OTHER SECURITIES.

     

    (a)           Adjustment of Conversion
Price upon Issuance of Common Shares.  If and whenever on or
after the Subscription Date through the second (2nd) year anniversary of the
Issuance Date, the Company issues or sells, or in accordance with this Section
7(a) is deemed to have issued or sold, any Common Shares (including the issuance
or sale of Common Shares owned or held by or for the account of the Company, but
excluding Common Shares issued or sold by the Company or deemed to have been
issued or sold by the Company as, or in connection with, any Excluded Security)
for a consideration per share (the "New Issuance Price") less than
a price (the "Applicable
Price") equal to the Conversion Price in effect immediately prior to such
issue or sale or deemed issuance or sale (the foregoing a "Dilutive Issuance"), then
immediately after such Dilutive Issuance, the Conversion Price then in effect
shall be reduced to an amount equal to the New Issuance Price.  If and
whenever after the second (2nd) year anniversary of the Issuance Date, the
Company issues or sells, or in accordance with this Section 7(a) is deemed to
have issued or sold, any Common Shares (including the issuance or sale of Common
Shares owned or held by or for the account of the Company, but excluding Common
Shares issued or sold by the Company or deemed to have been issued or sold by
the Company as, or in connection with, any Excluded Security) in a Dilutive
Issuance, then immediately after such Dilutive Issuance, the Conversion Price
then in effect shall be reduced to an amount equal the product of (A) the
Conversion Price in effect immediately prior to such Dilutive Issuance and
(B) the quotient determined by dividing (1) the sum of (I) the product
derived by multiplying the Conversion Price in effect immediately prior to such
Dilutive Issuance and the number of Common Shares Deemed Outstanding immediately
prior to such Dilutive Issuance plus (II) the consideration, if any,
received (or deemed to be received) by the Company upon such Dilutive Issuance,
by (2) the product derived by multiplying (I) the Conversion Price in
effect immediately prior to such Dilutive Issuance by (II) the number of
Common Shares Deemed Outstanding immediately after such Dilutive
Issuance.  For purposes of determining the adjusted Conversion Price
under this Section 7(a), the following shall be applicable:

     

    (i)           Issuance of
Options.  If the Company in any manner grants or sells any
Options and the lowest price per share for which one Common Share is issuable
upon the exercise of any such Option or upon conversion or exchange or exercise
of any Convertible Securities issuable upon exercise of such Option is less than
the Applicable Price, then such Common Share shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the granting or
sale of such Option for such price per share.  For purposes of this
Section 7(a)(i), the "lowest price per share for which one Common Share is
issuable upon the exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of such Option"
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one Common Share upon
granting or sale of the Option, upon exercise of the Option and upon conversion
or exchange or exercise of any Convertible Security issuable upon exercise of
such Option.  No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Share or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
Common Shares upon conversion or exchange or exercise of such Convertible
Securities.

     

    
      
         


      

      
        - 13
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    (ii)           Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one Common Share
is issuable upon such conversion or exchange or exercise thereof is less than
the Applicable Price, then such Common Share shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the issuance or
sale of such Convertible Securities for such price per share.  For the
purposes of this Section 7(a)(ii), the "lowest price per share for which one
Common Share is issuable upon such conversion or exchange or exercise" shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one Common Share upon the issuance
or sale of the Convertible Security and upon the conversion or exchange or
exercise of such Convertible Security.  No further adjustment of the
Conversion Price shall be made upon the actual issuance of such Common Share
upon conversion or exchange or exercise of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Conversion Price had been or are to be
made pursuant to other provisions of this Section 7(a), no further adjustment of
the Conversion Price shall be made by reason of such issue or sale.

     

    (iii)           Change in Option Price or
Rate of Conversion.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exchange or exercise of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable or
exercisable for Common Shares changes at any time, the Conversion Price in
effect at the time of such change shall be adjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold.  For purposes of this Section 7(a)(iii), if the terms
of any Option or Convertible Security that was outstanding as of the
Subscription Date are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Shares deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change.  No
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.

     

    
      
         


      

      
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    (iv)           Calculation of Consideration
Received.  In case any Option is issued in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction, (x) the Options will be deemed to have been issued for a
value determined by use of the Black Scholes Option Pricing Model (the "Option Value") and (y) the
other securities issued or sold in such integrated transaction shall be deemed
to have been issued for the difference of (I) the aggregate consideration
received by the Company, less (II) the Option Value.  If any Common
Shares, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor.  If any Common
Shares, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such securities on the
date of receipt.  If any Common Shares, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Shares, Options or Convertible Securities, as the case may
be.  The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the Required
Holders.  If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair
value of such consideration will be determined within five (5) Business Days
after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders.  The determination
of such appraiser shall be deemed binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the
Company.

     

    (v)           Record
Date.  If the Company takes a record of the holders of Common
Shares for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Shares, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Shares, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

     

    (b)           Adjustment of Conversion
Price upon Subdivision or Combination of Common Shares.  If the
Company at any time on or after the Subscription Date subdivides (by any share
dividend, share split, recapitalization or otherwise) one or more classes of its
outstanding Common Shares into a greater number of shares, the Conversion Price
in effect immediately prior to such subdivision will be proportionately
reduced.  If the Company at any time on or after the Subscription Date
combines (by combination, reverse share split or otherwise) one or more classes
of its outstanding Common Shares into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination will be proportionately
increased.

     

    (c)           Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of share appreciation rights,
phantom share rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.

     

    (d)           De Minimis
Adjustments.  No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 in such price; provided, however, that any adjustment which by
reason of this Section 7(d) is not required to be made shall be carried forward
and taken into account in any subsequent adjustments under this Section
7.  All calculations under this Section 7 shall be made by the Company
in good faith and shall be made to the nearest cent or to the nearest one
hundredth of a share, as applicable.  No adjustment need be made for a
change in the par value or no par value of the Company's Common
Shares.

     

    
      
         


      

      
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    (e)           Voluntary Adjustment By
Company. The Company may at any time during the term of this Note reduce
the then current Conversion Price to any amount and for any period of time
deemed appropriate by the Board of Directors of the Company.

     

    (f)           Adjustment.  If
the Market Price on the twentieth (20th) Trading Day following the thirtieth
(30th) calendar day after the earlier of (i) the Initial Effective Date (as
defined in the Registration Rights Agreement) and (ii) the date the Common
Shares issuable upon conversion of this Note may initially be sold by the Holder
(assuming the Holder is not an affiliate of the Company) in accordance with Rule
144 of the Securities Act (the "Adjustment Date"), is less
than the Conversion Price then in effect, the Conversion Price hereunder shall
be reset to the greater of (x) the Market Price as of the Adjustment Date and
(y) $4.835 (as adjusted for any share dividend, share split, share combination,
reclassification or similar transaction).  For the avoidance of doubt,
the adjusted Conversion Price, if any, hereunder shall not apply to any
Conversion Amount converted into Common Shares prior to the Adjustment
Date.

     

    (8)           NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Memorandum and Articles of Association or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Note, and will
at all times in good faith carry out all of the provisions of this Note and take
all action as may be required to protect the rights of the Holder of this
Note.  For the avoidance of doubt, solicitation by the Company in
accordance with the requirements of the Notes and the Purchase Agreement of the
consents of the Required Holders to any amendment, modification or waiver of any
provision of the Notes shall not be or be deemed an avoidance of performance of
the terms of this Note.

     

    (9)           RESERVATION OF AUTHORIZED
SHARES.

     

    (a)           Reservation.  The
Company shall initially reserve out of its authorized and unissued Common Shares
a number of Common Shares for each of the Notes equal to 130% of the Conversion
Rate with respect to the Conversion Amount of each such Note as of the
Issuance Date.  So long
as any of the Notes are outstanding, the Company shall take all action necessary
to reserve and keep available out of its authorized and unissued Common Shares,
solely for the purpose of effecting the conversion of the Notes, 130% of the
number of Common Shares as shall from time to time be necessary to effect the
conversion of all of the Notes then outstanding; provided that at no time shall
the number of Common Shares so reserved be less than the number of shares
required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the "Required Reserve
Amount").  The initial number of Common Shares reserved for
conversions of the Notes and each increase in the number of shares so reserved
shall be allocated pro rata among the holders of the Notes based on the
principal amount of the Notes held by each holder of the Notes at the Closing
(as defined in the Securities Purchase Agreement) or increase in the number of
reserved shares, as the case may be (the "Authorized Share
Allocation").  In the event that a holder of Notes shall sell
or otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share
Allocation.  Any Common Shares reserved and allocated to any Person
which ceases to hold any Notes shall be allocated to the remaining holders of
Notes, pro rata based on the principal amount of the Notes then held by such
holders.

     

    
      
         


      

      
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    (b)           Insufficient Authorized
Shares.  If at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved Common Shares to satisfy its obligation to reserve for issuance upon
conversion of the Notes at least a number of Common Shares equal to the Required
Reserve Amount (an "Authorized
Share Failure"), then the Company shall as soon as practicable take all
action necessary to increase the Company's authorized Common Shares to an amount
sufficient to allow the Company to reserve the Required Reserve Amount for the
Notes then outstanding.  Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall either (x)
obtain the vote or written consent of its shareholders for the approval of an
increase in the number of authorized Common Shares and provide each shareholder
with an information statement with respect thereto or (y) hold a meeting of its
shareholders for the approval of an increase in the number of authorized Common
Shares.  In connection with any such meeting, the Company shall
provide each shareholder with a proxy statement and shall use its reasonable
best efforts to solicit its shareholders' approval of such increase in
authorized Common Shares and to cause its Board of Directors to recommend to the
shareholders that they approve such proposal.

     

    (10)           OPTIONAL REDEMPTION AT THE
HOLDER'S ELECTION.  If the Shareholder Approval has not
occurred on or prior to the Shareholder Approval Deadline (as defined in the
Securities Purchase Agreement), the Holder shall have the right, in its sole
discretion, at any time thereafter until the later to occur of (i) the two (2)
month anniversary of the Shareholder Approval Deadline and (ii) the Initial
Effective Date of the Initial Registration Statement (as defined in the
Registration Rights Agreement) of the Company covering the resale of all of the
Lu Shares (as defined in the Registration Rights Agreement), to require that the
Company redeem (an "Holder
Optional Redemption") all or any portion of the Conversion Amount of this
Note then outstanding by delivering written notice thereof (an "Holder Optional Redemption
Notice" and the date the Holder delivers such notice, the "Holder Optional Redemption Notice
Date") which notice shall state (i) the portion of this Note that is
being redeemed (the "Holder
Optional Redemption Amount") and (ii) the date on which the Holder
Optional Redemption shall occur which date shall be not less than five (5)
Business Days from the Holder Optional Redemption Notice Date (the "Holder Optional Redemption
Date").  The portion of this Note subject to redemption
pursuant to this Section 10 shall be redeemed by the Company in cash at a price
(the "Holder Optional
Redemption Price") equal to 110% of the Conversion Amount being redeemed
together with any accrued and unpaid Interest and Late Charges, if any, on such
Conversion Amount and Interest through the Holder Optional Redemption
Date.  Holder Optional Redemptions made pursuant to this Section 10
shall be made in accordance with Section 12.

     

    
      
         


      

      
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    (11)           OPTIONAL REDEMPTION AT THE
COMPANY'S ELECTION.

     

    (a)           General.  If
at any time after the thirty (30) month anniversary of the Issuance Date (the
"Company Optional Redemption
Eligibility Date"), (i) the Market Price of the Common Shares listed on
the Principal Market exceeds 200% of the Conversion Price then in effect for a
period of twenty (20) consecutive Trading Days commencing after the Company
Optional Redemption Eligibility Date (the "Company Optional Redemption Measuring
Period"), (ii) the average daily dollar trading volume (as reported on
Bloomberg) of the Common Shares on the Principal Market over the twenty (20)
consecutive Trading Day period ending on the Trading Day immediately preceding
the Company Optional Redemption Notice Date exceeds $1 million and (iii) no
Equity Conditions Failure has occurred, the Company shall have the right to
redeem all, but not less than all, of the Conversion Amount then remaining under
this Note (the "Company
Optional Redemption Amount") as designated in the Company Optional
Redemption Notice (as defined below) on the Company Optional Redemption Date
(each as defined below) (an "Company Optional
Redemption").  The portion of this Note subject to redemption
pursuant to this Section 11(a) shall be redeemed by the Company in cash at a
price (the "Company Optional
Redemption Price") equal to the Conversion Amount being redeemed together
with the Make-Whole Amount and any accrued and unpaid Interest and Late Charges,
if any, on such Conversion Amount and Interest through the Company Optional
Redemption Date (as defined below).  The Company may exercise its
right to require redemption under this Section 11 by delivering a written notice
thereof by facsimile and overnight courier to all, but not less than all, of the
holders of Notes (the "Company
Optional Redemption Notice" and the date all of the holders of Notes
received such notice is referred to as the "Company Optional Redemption Notice
Date").  The Company may deliver up to three (3) Company
Optional Redemption Notices hereunder and each such Company Optional Redemption
Notice shall be irrevocable.  The Company Optional Redemption Notice
shall (x) state the date on which the Company Optional Redemption shall occur
(the "Company Optional
Redemption Date") which date shall not be less than twenty (20) Trading
Days nor more than sixty (60) Trading Days following the Company Optional
Redemption Notice Date, (y) certify that there has been no Equity Conditions
Failure and (z) state the aggregate Conversion Amount of the Notes which the
Company has elected to be subject to Company Optional Redemption from the Holder
and all of the other holders of the Notes pursuant to this Section 11(a) (and
analogous provisions under the Other Notes) on the Company Optional Redemption
Date.  Notwithstanding anything to the contrary in this Section 11, at
any time prior to the date the Company Optional Redemption Price is paid, in
full, the Company Optional Redemption Amount may be converted, in whole or in
part, by the Holders into Common Shares pursuant to Section 3.  All
Conversion Amounts converted by the Holder after the Company Optional Redemption
Notice Date shall reduce the Company Optional Redemption Amount of this Note
required to be redeemed on the Company Optional Redemption
Date.  Redemptions made pursuant to this Section 11 shall be made in
accordance with Section 12.

     

    
      
         


      

      
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    (b)           Pro Rata Redemption
Requirement.  If the Company elects to cause a Company Optional
Redemption pursuant to Section 11(a), then it must simultaneously take the same
action in the same proportion with respect to the Other Notes.  If the
Company elects to cause a Company Optional Redemption pursuant to Section 11(a)
(or similar provisions under the Other Notes) with respect to less than all of
the Conversion Amounts of the Notes then outstanding, then the Company shall
require redemption of a Conversion Amount from each of the holders of the Notes
equal to the product of (i) the aggregate Conversion Amount of Notes which the
Company has elected to cause to be redeemed pursuant to Section 11(a),
multiplied by (ii) the fraction, the numerator of which is the sum of the
aggregate Original Principal Amount of the Notes purchased by such holder of
outstanding Notes and the denominator of which is the sum of the aggregate
Original Principal Amount of the Notes purchased by all holders holding
outstanding Notes (such fraction with respect to each holder is referred to as
its "Redemption Allocation
Percentage", and such amount with respect to each holder is referred to
as its "Pro Rata Redemption
Amount"); provided, however that in the event that any holder's Pro Rata
Redemption Amount exceeds the outstanding Principal amount of such holder's
Note, then such excess Pro Rata Redemption Amount shall be allocated amongst the
remaining holders of Notes in accordance with the foregoing
formula.  In the event that the initial holder of any Notes shall sell
or otherwise transfer any of such holder's Notes, the transferee shall be
allocated a pro rata portion of such holder's Redemption Allocation Percentage
and Pro Rata Redemption Amount.

     

    (12)           REDEMPTIONS.

     

    (a)           Mechanics.  The
Company shall deliver the applicable Event of Default Redemption Price to the
Holder within five (5) Business Days after the Company's receipt of the Holder's
Event of Default Redemption Notice (the "Event of Default Redemption
Date").  If the Holder has submitted a Change of Control
Redemption Notice in accordance with Section 5(b), the Company shall deliver the
applicable Change of Control Redemption Price to the Holder (i) concurrently
with the consummation of such Change of Control if such notice is received prior
to the consummation of such Change of Control and (ii) within five (5) Business
Days after the Company's receipt of such notice otherwise (such date, the "Change of Control Redemption
Date"). The Company shall deliver the applicable Holder Optional
Redemption Price on the applicable Holder Optional Redemption Date. The Company
shall deliver the applicable Company Optional Redemption Price on the applicable
Company Optional Redemption Date. In the event of a redemption of less than all
of the Conversion Amount of this Note, the Company shall promptly cause to be
issued and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been
redeemed.  In the event that the Company does not pay the applicable
Redemption Price to the Holder within the time period required, at any time
thereafter and until the Company pays such unpaid Redemption Price in full, the
Holder shall have the option, in lieu of redemption, to require the Company to
promptly return to the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which the applicable
Redemption Price (together with any Late Charges thereon) has not been
paid.  Upon the Company's receipt of such notice, (x) the applicable
Redemption Notice shall be null and void with respect to such Conversion Amount,
(y) the Company shall immediately return this Note, or issue a new Note (in
accordance with Section 18(d)) to the Holder representing such Conversion Amount
to be redeemed and (z) the Conversion Price of this Note or such new Notes shall
be adjusted to the lesser of (A) the Conversion Price then in effect and (B) the
Market Price as of the date on which the applicable Redemption Notice is
delivered to the Company.  The Holder's delivery of a notice voiding a
Redemption Notice and exercise of its rights following such notice shall not
affect the Company's obligations to make any payments of Late Charges which have
accrued prior to the date of such notice with respect to the Conversion Amount
subject to such notice.

     

    
      
         


      

      
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    (b)           Redemption by Other
Holders.  Upon the Company's receipt of notice from any of the
holders of the Other Notes for redemption or repayment as a result of an event
or occurrence substantially similar to the events or occurrences described in
Section 4(b), Section 5(b), Section 10 or Section 11 (each, an "Other Redemption Notice"), the
Company shall immediately, but no later than one (1) Business Day of its receipt
thereof, forward to the Holder by facsimile a copy of such notice.  If
the Company receives a Redemption Notice and one or more Other Redemption
Notices, during the seven (7) Business Day period beginning on and including the
date which is three (3) Business Days prior to the Company's receipt of the
Holder's Redemption Notice and ending on and including the date which is three
(3) Business Days after the Company's receipt of the Holder's Redemption Notice
and the Company is unable to redeem all principal, interest and other amounts
designated in such Redemption Notice and such Other Redemption Notices received
during such seven (7) Business Day period, then the Company shall redeem a pro
rata amount from each holder of the Notes (including the Holder) based on the
principal amount of the Notes submitted for redemption pursuant to such
Redemption Notice and such Other Redemption Notices received by the Company
during such seven Business Day period.

     

    (13)           VOTING
RIGHTS.  The Holder shall have no voting rights as the holder
of this Note, except as required by law, including, but not limited to, the laws
of the British Virgin Islands, and as expressly provided in this
Note.

     

    (14)           COVENANTS.

     

    (a)           Rank.  All
payments due under this Note (a) shall rank pari passu with all Other
Notes and (b) shall be senior to all other Indebtedness of the Company and its
Subsidiaries other than Permitted Indebtedness.

     

    (b)           Incurrence of
Indebtedness.  So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly
or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness,
other than Permitted Indebtedness.

     

    (c)           Existence of
Liens.  So long as this Note is outstanding, the Company shall
not, and the Company shall not permit any of its Subsidiaries to, directly or
indirectly, allow or suffer to exist any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "Liens") other than Permitted
Liens.

     

    (d)           Restricted
Payments.  The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Indebtedness (other than this Note and the Other Notes), whether by way of
payment in respect of principal of (or premium, if any) or interest on, such
Indebtedness if at the time such payment is due or is otherwise made or, after
giving effect to such payment, an event constituting, or that with the passage
of time and without being cured would constitute, an Event of Default has
occurred and is continuing.

     

    
      
         


      

      
        - 20
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    (e)           Restriction on Redemption
and Cash Dividends.  Until all of the Notes have been
converted, redeemed or otherwise satisfied in accordance with their terms, the
Company shall not, directly or indirectly, redeem, repurchase or declare or pay
any cash dividend or distribution on its capital stock without the prior express
written consent of the Required Holders.

     

    (f)           Change in Nature of
Business.  The Company shall not engage, or permit any of its
Subsidiaries to engage, in any material line of business substantially different
from those lines of business conducted by the Company and its Subsidiaries on
the date hereof or any business substantially related or incidental
thereto.  The Company shall not modify its corporate structure or
purpose.

     

    (g)           Preservation of Existence,
Etc.  The Company shall maintain and preserve, and cause each
of its Subsidiaries to maintain and preserve, its existence, rights and
privileges, and become or remain, and cause each of its Subsidiaries to become
or remain, duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary, except where the failure to
maintain and preserve such existence, rights and privileges, or to become and
remain in good standing, would not reasonably be expected to have a Material
Adverse Effect.

     

    (h)           Maintenance of Properties,
Etc.  The Company shall maintain and preserve, and cause each
of its Subsidiaries to maintain and preserve, all of its properties which are
necessary or useful in the proper conduct of its business in good working order
and condition, ordinary wear and tear excepted, and comply, and cause each of
its Subsidiaries to comply, at all times with the provisions of all leases to
which it is a party as lessee or under which it occupies property, so as to
prevent any loss or forfeiture thereof or thereunder, except (i) sales of
properties which, in the judgment of the Company's board of directors, are no
longer required for the conduct of the Company's business, the proceeds of which
are invested in other property for use in a business permitted by Section 14(f),
or (ii) where the failure to maintain and preserve any such properties or any
such loss or forfeiture would not reasonably be expected to have a Material
Adverse Effect.

     

    (i)           Maintenance of
Insurance.  The Company shall maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to its
properties (including all real properties leased or owned by it) and business,
in such amounts and covering such risks as is required by any governmental
authority having jurisdiction with respect thereto or as is carried generally in
accordance with sound business practice by companies in similar businesses
similarly situated.

     

    
      
         


      

      
        - 21
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    (15)        PARTICIPATION.  The
Holder, as the holder of this Note, shall be entitled to receive such dividends
paid and distributions (other than Pill Rights) made to the holders of Common
Shares to the same extent as if the Holder had converted this Note into Common
Shares (without regard to any limitations on conversion herein or elsewhere) and
had held such Common Shares on the record date for such dividends and
distributions.  Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common
Shares.  The Holder, as the holder of this Note, shall be entitled to
receive any Pill Rights (or, at the option of the Holder, to the extent such
Pill Rights become exercisable or have been exercised into equity interests of
the Company or any other distribution is made of equity interests of the Company
to holders of such Pill Rights, such equity interests of the Company) made to
the holders of Common Shares concurrently with any issuance of Common Shares
upon conversion of this Note or otherwise as Interest Shares hereunder to the
same extent as if the Holder had converted this Note into such Common Shares
(without regard to any limitations on conversion herein or elsewhere) and had
held such Common Shares on the record date for such dividend or distribution of
Pill Rights.

     

    (16)         VOTE TO ISSUE, OR CHANGE THE
TERMS OF, NOTES.  The affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting of the Required
Holders shall be required for any change or amendment to this Note or the Other
Notes.

     

    (17)         TRANSFER.  This
Note and any Common Shares issued upon conversion of this Note may be offered,
sold, assigned or transferred by the Holder without the consent of the Company,
subject only to the provisions of Section 2(f) of the Securities Purchase
Agreement.

     

    (18)         REISSUANCE OF THIS
NOTE.

     

    (a)           Transfer.  If
this Note is to be transferred, the Holder shall surrender this Note to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Note (in accordance with Section 18(d)), registered as the
Holder may request, representing the outstanding Principal being transferred by
the Holder and, if less then the entire outstanding Principal is being
transferred, a new Note (in accordance with Section 18(d)) to the Holder
representing the outstanding Principal not being transferred.  The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(iii) following conversion or
redemption of any portion of this Note, the outstanding Principal represented by
this Note may be less than the Principal stated on the face of this
Note.

     

    (b)           Lost, Stolen or Mutilated
Note.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal.

     

    
      
         


      

      
        - 22
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    (c)           Note Exchangeable for
Different Denominations.  This Note is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Note or Notes (in accordance with Section 18(d) and in principal amounts of at
least $100,000) representing in the aggregate the outstanding Principal of this
Note, and each such new Note will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such
surrender.

     

    (d)           Issuance of New
Notes.  Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor
with this Note, (ii) shall represent, as indicated on the face of such new Note,
the Principal remaining outstanding (or in the case of a new Note being issued
pursuant to Section 18(a) or Section 18(c), the Principal designated by the
Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges, if any, on the Principal and Interest of this Note,
from the Issuance Date.

     

    (19)         REMEDIES, CHARACTERIZATIONS,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The
remedies provided in this Note shall be cumulative and in addition to all other
remedies available under this Note and any of the other Transaction Documents at
law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the Holder's right to pursue
damages for any failure by the Company to comply with the terms of this
Note.  Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof).  The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate.  The Company
therefore agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

     

    (20)         PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS.  If (a) this Note is placed in the
hands of an attorney for collection or enforcement or is collected or enforced
through any legal proceeding or the Holder otherwise takes action to collect
amounts due under this Note or to enforce the provisions of this Note or (b)
there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors' rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but not limited to,
attorneys' fees and disbursements.

     

    (21)         CONSTRUCTION;
HEADINGS.  This Note shall be deemed to be jointly drafted by
the Company and all the Purchasers and shall not be construed against any person
as the drafter hereof.  The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.

     

    
      
         


      

      
        - 23
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    (22)         FAILURE OR INDULGENCE NOT
WAIVER.  No failure or delay on the part of the Holder in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.

     

    (23)         DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate, the Conversion Price or
any Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one (1) Business Day of receipt, or
deemed receipt, of the Conversion Notice or Redemption Notice or other event
giving rise to such dispute, as the case may be, to the Holder.  If
the Holder and the Company are unable to agree upon such determination or
calculation within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within one Business Day submit via facsimile (a) the disputed determination of
the Closing Bid Price, the Closing Sale Price or the Weighted Average Price to
an independent, reputable investment bank selected by the Company and approved
by the Holder, such approval not to be unreasonably withheld, or (b) the
disputed arithmetic calculation of the Conversion Rate, Conversion Price or any
Redemption Price to an independent, outside accountant, selected by the Company
and approved by the Holder, such approval not to be unreasonably
withheld.  The Company, at the Company's expense, shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than five (5) Business Days from the time it receives the
disputed determinations or calculations.  Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

     

    (24)         NOTICES;
PAYMENTS.

     

    (a)           Notices.  Whenever
notice is required to be given under this Note, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement.  The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Note, including
in reasonable detail a description of such action and the reason
therefore.  Without limiting the generality of the foregoing, the
Company will give written notice to the Holder (i) immediately upon any
adjustment of the Conversion Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least twenty (20)
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the Common Shares, (B)
with respect to any pro rata subscription offer to holders of Common Shares or
(C) for determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.

     

    
      
         


      

      
        - 24
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    (b)           Payments.  Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America
by a check drawn on the account of the Company and sent via overnight courier
service to such Person at such address as previously provided to the Company in
writing (which address, in the case of each of the Purchasers, shall initially
be as set forth on the Schedule of Buyers attached to the Securities Purchase
Agreement); provided that the Holder may elect to receive a payment of cash via
wire transfer of immediately available funds by providing the Company with prior
written notice setting out such request and the Holder's wire transfer
instructions.  Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of Interest due on such date.  Any amount of
Principal or other amounts due under the Transaction Documents which is not paid
when due shall result in a late charge being incurred and payable by the Company
in an amount equal to interest on such amount at the rate of fifteen percent
(15%) per annum from the date such amount was due until the same is paid in full
("Late
Charge").

     

    (25)         CANCELLATION.  After
all Principal, accrued Interest and other amounts at any time owed on this Note
have been paid in full, this Note shall automatically be deemed canceled, shall
be surrendered to the Company for cancellation and shall not be
reissued.

     

    (26)         WAIVER OF
NOTICE.  To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.

     

    (27)         GOVERNING LAW; JURISDICTION; JURY
TRIAL.  This Note shall be construed and enforced in accordance
with, and all questions concerning the construction, validity, interpretation
and performance of this Note shall be governed by, the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.  The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.  The Company hereby appoints C T Corporation System, with
offices at 111 Eighth Avenue, New York, New York 10011, as its agent for service
of process in New York.  The Company hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address it set forth on the signature page hereto and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.  Nothing contained herein
shall be deemed or operate to preclude the Holder from bringing suit or taking
other legal action against the Company in any other jurisdiction to collect on
the Company's obligations to the Holder, to realize on any collateral or any
other security for such obligations, or to enforce a judgment or other court
ruling in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

     

    
      
         


      

      
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    (28)         CURRENCY;
TAXES.

     

    (a)           Currency.  All
principal, interest and other amounts owing under this Note or any Transaction
Document that, in accordance with their terms, are paid in cash shall be paid in
US dollars.   All amounts denominated in other currencies shall
be converted in the US dollar equivalent amount in accordance with the Exchange
Rate on the date of calculation.

     

    (b)           Taxes.

     

    (i)           Any
and all payments by the Company hereunder, including any amounts received on a
conversion or redemption of the Note and any amounts on account of interest or
deemed interest, shall be made free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, imposed under any law,
rule, code or regulation of the People's Republic of China, the British Virgin
Islands or any other non-U.S. governmental authority, including, without
limitation, any federal, state, local, provincial or other similar non-U.S.
governmental authority (collectively referred to as "International
Taxes").  If the Company shall be required to deduct any
International Taxes from or in respect of any sum payable hereunder to the
Holder, (i) the sum payable shall be increased by the amount by which the sum
payable would otherwise have to be increased (the "tax make-whole amount") to
ensure that after making all required deductions (including deductions
applicable to the tax make-whole amount) the Holder would receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Company shall make such deductions and (iii) the Company shall pay the full
amount withheld or deducted to the applicable governmental authority within the
time required.

     

    (ii)           In
addition, the Company agrees to pay to the relevant governmental authority in
accordance with applicable law any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies that arise from
any payment made hereunder or in connection with the execution, delivery,
registration or performance of, or otherwise with respect to, this Note ("Other Taxes").  The
Company shall deliver to the Holder official receipts, if any, in respect of any
International Taxes and Other Taxes payable hereunder promptly after payment of
such International Taxes, Other Taxes or other evidence of payment reasonably
acceptable to the Holder.

     

    (iii)          The
obligations of the Company under this Section 28(b) shall survive the
termination of this Note and the payment of the Note and all other amounts
payable hereunder.

     

    
      
         


      

      
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    (29)         JUDGMENT
CURRENCY.

     

    (a)           If
for the purpose of obtaining or enforcing judgment against the Company in any
court in any jurisdiction it becomes necessary to convert into any other
currency (such other currency being hereinafter in this Section 29 referred to
as the "Judgment
Currency") an amount due in US dollars under this Note, the conversion
shall be made at the Exchange Rate prevailing on the business day immediately
preceding:

     

    (i)           the
date actual payment of the amount due, in the case of any proceeding in the
courts of New York or in the courts of any other jurisdiction that will give
effect to such conversion being made on such date: or

     

    (ii)           the
date on which the foreign court determines, in the case of any proceeding in the
courts of any other jurisdiction (the date as of which such conversion is made
pursuant to this Section 29(a)(ii) being hereinafter referred to as the "Judgment Conversion
Date").

     

    (b)           If
in the case of any proceeding in the court of any jurisdiction referred to in
Section 29(a)(ii) above, there is a change in the Exchange Rate prevailing
between the Judgment Conversion Date and the date of actual payment of the
amount due, the applicable party shall pay such adjusted amount as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the Exchange Rate prevailing on the date of payment, will produce
the amount of US dollars which could have been purchased with the amount of
Judgment Currency stipulated in the judgment or judicial order at the Exchange
Rate prevailing on the Judgment Conversion Date.

     

    (c)           Any
amount due from the Company under this provision shall be due as a separate debt
and shall not be affected by judgment being obtained for any other amounts due
under or in respect of this Note.

     

    (30)         SEVERABILITY. If any
provision of this Note is prohibited by law or otherwise determined to be
invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Note so long as this Note as so
modified continues to express, without material change, the original intentions
of the parties as to the subject matter hereof and the prohibited nature,
invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties.  The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to
that of the prohibited, invalid or unenforceable provision(s).

     

    (31)         CERTAIN
DEFINITIONS.  For purposes of this Note, the following terms
shall have the following meanings:

     

    
      
         


      

      
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    (a)           "Additional Conversion Notice Due
Date" means the twenty-fifth (25th) Trading Day prior to the applicable
Conversion Date.

     

    (b)           "Approved Share Plan" means any
employee benefit plan which has been approved by the Board of Directors of the
Company prior or subsequent to the Subscription Date, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company.

     

    (c)           "Bloomberg" means Bloomberg
Financial Markets.

     

    (d)           "Business Day" means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York or Hong Kong are authorized or required by law to remain
closed.

     

    (e)           "Change of Control" means any
Fundamental Transaction other than (i) any reorganization, recapitalization or
reclassification of the Common Shares in which holders of the Company's voting
power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (ii) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

     

    (f)           "Closing Bid Price" and "Closing Sale Price" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder are unable to agree upon the
fair market value of such security, then such dispute shall be resolved pursuant
to Section 23.  All such determinations shall be appropriately
adjusted for any share dividend, share split, share combination,
reclassification or similar transaction during the applicable calculation
period.

     

    
      
         


      

      
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    (g)           "Closing Date" shall have the
meaning set forth in the Securities Purchase Agreement, which date is the date
the Company initially issued Notes pursuant to the terms of the Securities
Purchase Agreement.

     

    (h)           "Common Shares Deemed
Outstanding" means, at any given time, the number of Common Shares
outstanding at such time, plus the number of Common Shares deemed to be
outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of
whether the Options or Convertible Securities are actually exercisable at such
time, but excluding any Common Shares owned or held by or for the account of the
Company or issuable upon conversion or exercise, as applicable, of the Notes and
the Warrants or issued as Interest Shares.

     

    (i)           "Contingent Obligation" means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any Indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto.

     

    (j)           
"Convertible Securities"
means any shares or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for Common Shares.

     

    (k)           "Eligible Market" means the
Principal Market, The New York Stock Exchange, Inc., NYSE Amex, The NASDAQ
Global Market or The NASDAQ Capital Market.

     

    
      
         


      

      
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    (l)           "Equity Conditions" means that
each of the following conditions is satisfied:  (i) on each day during
the period beginning one hundred and twenty days (120) days prior to the
applicable date of determination and ending on and including the applicable date
of determination (the "Equity
Conditions Measuring Period"), either (x) the Registration Statement (as
defined in the Registration Rights Agreement, the "Registration Statement") filed
pursuant to the Registration Rights Agreement shall be effective and available
for the resale of all of the Registrable Securities in accordance with the terms
of the Registration Rights Agreement and no Grace Period (as defined in the
Registration Rights Agreement) shall have occurred during the Equity Conditions
Measuring Period or (y) all Common Shares issuable upon conversion of the Notes,
exercise of the Warrants and, to the extent the issuance covers Interest Shares,
as Interest Shares shall be eligible for sale without restriction and without
the need for registration under any applicable federal or state securities laws;
(ii) on each day during the Equity Conditions Measuring Period, the Common
Shares is designated for quotation on the Principal Market or any other Eligible
Market and shall not have been suspended from trading on such exchange or market
(other than suspensions of not more than two (2) days and occurring prior to the
applicable date of determination due to business announcements by the Company)
nor shall delisting or suspension by such exchange or market been threatened or
pending either (A) in writing by such exchange or market or (B) by falling below
the then effective minimum listing maintenance requirements of such exchange or
market; (iii) during the one hundred and eighty (180) day period ending on and
including the date immediately preceding the applicable date of determination,
the Company shall have delivered Common Shares upon conversion of the Notes and
upon exercise of the Warrants to the holders on a timely basis as set forth in
Section 3(c)(ii) hereof (and analogous provisions under the Other Notes) and
Section 1(a) of the Warrants; (iv) during the Equity Conditions Measuring
Period, any applicable Common Shares to be issued in connection with the
event requiring determination may be issued in full without violating Section
3(d) hereof and the rules or regulations of the Principal Market or any
applicable Eligible Market; (v) during the Equity Conditions Measuring Period,
the Company shall not have failed to timely make any payments within five (5)
Business Days of when such payment is due pursuant to any Transaction Document;
(vi) during the Equity Conditions Measuring Period, there shall not have
occurred either (A) the public announcement of a pending, proposed or intended
Fundamental Transaction which has not been abandoned, terminated or consummated,
(B) an Event of Default or (C) an event that with the passage of time or giving
of notice would constitute an Event of Default; (vii) the Company shall have no
knowledge of any fact that would cause (x) the Registration Statements required
pursuant to the Registration Rights Agreement not to be effective and available
for the resale of all remaining Registrable Securities in accordance with the
terms of the Registration Rights Agreement or (y) any Common Shares issuable
upon conversion of the Notes, Common Shares issuable upon exercise of the
Warrants and, to the extent applicable, issuable as Interest Shares not to be
eligible for sale without restriction pursuant to Rule 144 and without the
requirement to be in compliance with Rule 144(c)(1) (or any successor thereto)
promulgated under the 1933 Act; (ix) the Company otherwise shall have been in
compliance with and shall not have breached any provision, covenant,
representation or warranty of any Transaction Document, (x) the Market Price on
the last Trading Day in the applicable Equity Conditions Measuring Period
exceeds $1.00 and (xi) the Shareholder Approval shall have
occurred.

     

    (m)          "Equity Conditions Failure"
means that (i) on any day during the period commencing ten (10) Trading Days
prior to the applicable Interest Date through the applicable Interest Date, (ii)
on any day during the period commencing ten (10) Trading Days prior to the
applicable Company Optional Redemption Notice Date through the applicable
Company Optional Redemption Date, or (iii) on any day during the period
commencing with the Change of Control Redemption Notice Date and ending as of
the Change of Control Redemption Date, as applicable, the Equity Conditions have
not been satisfied (or waived in writing by the Holder).

     

    (n)           "Exchange Rate" means, in
relation to any amount of currency to be converted into US dollars pursuant to
this Note, the US dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation (it being understood and agreed that where
an amount is calculated with reference to, or over, a period of time, the date
of calculation shall be the final date of such period of time).

     

    
      
         


      

      
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    (o)           "Excluded Securities" means (i)
any Common Shares issued or issuable: (A) in connection with any Approved Share
Plan; (B) to Mr. Lu as incentive shares pursuant to that certain Stock Purchase
Agreement, dated April 14, 2007, between the Company and the other parties
listed on the signature pages thereto, which amount of Common Shares shall not
exceed an aggregate of 8,000,000 Common Shares; (C) upon conversion of the Notes
or the exercise of the Warrants or issued as Interest Shares; (D) upon exercise
of any Options or Convertible Securities which are outstanding on the day
immediately preceding the Subscription Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Subscription Date so as to reduce the exercise price of such Options
or the conversion price of such Convertible Securities or to increase the number
of Common Shares issuable upon conversion or exercise thereof (but not including
any such reduction in the conversion price or exercise price or increase in the
number of Common Shares issuable upon conversion or exercise thereof, in each
case, in accordance with the terms of such options or Convertible Securities as
in effect on the Subscription Date) and (E) to Mr. Lu to reimburse him or make
him whole for his delivery of Common Shares to the Holders pursuant to the Put
Agreement (as defined in the Securities Purchase Agreement), which amount of
Common Shares shall not exceed the aggregate amount of Common Shares delivered
to holders of Notes pursuant to the Put Agreement and (ii) any Pill
Rights.

     

    (p)           "Fundamental Transaction" means
that (A) the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person or Persons, if the holders of the
Voting Stock of the Company (not including any shares of Voting Stock of the
Company held by the Person or Persons making or party to, or associated or
affiliated with the Persons making or party to, such consolidation or merger)
immediately prior to such consolidation or merger shall hold or have the right
to direct the voting of less than 50% of the Voting Stock of the Company or such
voting securities of such other surviving Person immediately following such
transaction, (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
(iii) allow another Person to make a purchase, tender or exchange offer that is
accepted by the holders of more than the 50% of the outstanding shares of Voting
Stock of the Company (not including any shares of Voting Stock of the Company
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
(iv) consummate a securities purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such securities purchase agreement or other business
combination), or (v) reorganize, recapitalize or reclassify its Common Shares or
(B) any "person" or "group" (as these terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Shares.  Notwithstanding the foregoing, solely for the purpose
of the foregoing calculations, any director, officer or employee of the Company,
acting solely in its capacity as a director, officer or employee of the Company,
shall not be deemed to be making or party to, or associated or affiliated with
the Persons making or party to, such consolidation or merger.

     

    (q)           "GAAP" means United States
generally accepted accounting principles, consistently applied.

     

    
      
         


      

      
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    (r)           "Indebtedness" of any Person
means, without duplication (i) all indebtedness for borrowed money, (ii) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) "capital leases" in
accordance with GAAP (other than trade payables entered into in the ordinary
course of business), (iii) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations under any
leasing or similar arrangement which, in connection with GAAP, consistently
applied for the periods covered thereby, is classified as a capital lease, (vii)
all indebtedness referred to in clauses (i) through (vi) above secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (vii) above.

     

    (s)           "Interest Adjustment Rate"
means the rate, per annum, as determined on each Interest Date, equal to (i) if
the Market Price as of the applicable Interest Date is greater than $8.703, 0%,
(ii) if the Market Price as of the applicable Interest Date is less than or
equal to $8.703 and greater than $7.833, 1%, (iii) if the Market Price as of the
applicable Interest Date is less than or equal to $7.833 and greater than
$7.049, 2%, (iv) if the Market Price as of the applicable Interest Date is less
than or equal to $7.049 and greater than $6.344, 3%, (v) if the Market Price as
of the applicable Interest Date less than or equal to $6.344 and greater than
$5.71, 4% or (v) if the Market Price as of the applicable Interest Date is less
than or equal to 5.71, 5%.  Each of the dollar amounts set forth above
in this definition shall be appropriately adjusted for any share dividend, share
split, share combination, reclassification or similar transaction that occurs
after the Issuance Date.

     

    (t)           "Interest Conversion Price"
means, the lower of (i) the applicable Conversion Price and (ii) that price
which shall be computed as 80% of the Market Price as of the applicable Interest
Date or Conversion Date, as applicable.

     

    (u)           "Interest Notice Due Date"
means the twenty-fifth (25th) Trading Day prior to the applicable Interest Date
(or the Closing Date solely with respect to the July 1, 2009 Interest
Date).

     

    (v)           "Interest Rate" means, (i) during the
period commencing on the Issuance Date and ending on the first anniversary of
the Issuance Date, the sum of (x) 3.0% per annum and (y) the Interest Adjustment
Rate, (ii) during the period commencing on the calendar day immediately
following the first anniversary of the Issuance Date and ending on the third
anniversary of the Issuance Date, the sum of (x) 5.0% per annum and (y) the
Interest Adjustment Rate, (iii) during the period commencing on the calendar day
immediately following the third anniversary of the Issuance Date and ending on
the Maturity Date, the sum of (x) 7.0% per annum and (y) the Interest Adjustment
Rate, in each case, subject to adjustment as set forth in Section
2(c).

     

    
      
         


      

      
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    (w)          "Make-Whole Amount" means, as
to any Conversion Amount on any Conversion Date, as to any Company Optional
Redemption on any Company Optional Redemption Date, as to any Event of Default
Redemption on any Event of Default Redemption Date or as to any Change of
Control Redemption on any Change of Control Redemption Date, the amount of any
Interest that, but for (i) the Holder's exercise of its conversion right
pursuant to Section 3(c)(i), (ii) a Company Optional Redemption pursuant to
Section 11, (iii) an Event of Default Redemption pursuant to Section 4(b), or
(iv) a Change of Control Redemption pursuant to Section 5(b), would have accrued
with respect to the Conversion Amount being converted or redeemed under this
Note at the Interest Rate (assuming the Interest Adjustment Rate then in effect
as of the applicable Conversion Date, Company Optional Redemption Notice Date,
Event of Default Redemption Notice Date, Change of Control Redemption Notice
Date, as the case may be, is the Interest Adjustment Rate through the Maturity
Date) for the period from the applicable Conversion Date, Company Optional
Redemption Date, Event of Default Redemption Date, or Change of Control
Redemption Date, as the case may be, through the Maturity Date, discounted to
present value using the published yield on two year notes of the U.S. federal
government on the determination date.

     

    (x)           "Market Price" means, for any
given date, the arithmetic average of the Weighted Average Price of the Common
Shares for the twenty (20) consecutive Trading Day period (the "Market Price Measuring
Period") ending on the Trading Day immediately preceding such
date.  All such Weighted Average Prices shall be appropriately
adjusted for any share split, share dividend, share combination or other similar
transaction during the applicable Market Price Measuring Period.

     

    (y)          "Material Adverse Effect" means
(x) a Material Adverse Effect (as defined in the Securities Purchase Agreement
or (y) any material adverse effect on any Holder of the Notes (solely in its
capacity as a holder of Notes).

     

    (z)           "Options" means any rights,
warrants or options to subscribe for or purchase Common Shares or Convertible
Securities.

     

    (aa)         "Parent Entity" of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

     

    
      
         


      

      
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    (bb)        "Permitted Indebtedness" means
(i) the Indebtedness outstanding on the Subscription Date described on Schedule I attached
hereto, (ii) Indebtedness evidenced by this Note and the Other Notes, (iii)
unsecured Indebtedness incurred by the Company that is made expressly
subordinate in right of payment to the Indebtedness evidenced by this Note, as
reflected in a written agreement acceptable to the Holder and approved by the
Holder in writing, and which Indebtedness does not provide at any time for (A)
the payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one (91)
days after the Maturity Date or later and (B) total interest and fees at a rate
in excess of 15% per annum, (iv) Indebtedness
secured by Permitted Liens described in clauses (iv), (v) and (viii) of the
definition of Permitted Liens, (v) Indebtedness constituting the extension,
renewal, refinancing or replacement of any Indebtedness referred to in the
preceding clauses (i) and (iv), provided that (A) the principal amount of the
Indebtedness being extended, renewed, refinanced or replaced does not increase
and (B) total interest and fees thereunder do not exceed 15% per annum, (vi)
additional Indebtedness incurred by the Company in connection with any
redemption by the Company of the Notes in full (or in part, upon the occurrence
of a Holder Optional Redemption (as defined in this Note and/or the Other Notes,
as applicable) solely to the extent that (A) the aggregate amount of such
Indebtedness does not exceed the sum of (x) the aggregate amount of the Holder
Optional Redemption Price (as defined in this Note and/or the Other Notes, as
applicable) due and payable with respect to such Holder Optional Redemptions and
(y) the reasonable fees and expenses of such offering of Indebtedness) and (B)
total interest and fees thereunder do not exceed 15% per annum) pursuant to
Section 11 of this Note and Section 11 of the Other Notes and (vii) any other
additional Indebtedness in a aggregate amount outstanding at any one time not in
excess of (A) during the period commencing on the Issuance Date and ending on
the first anniversary of the Issuance Date, $10 million, (B) during the period
commencing on the calendar day immediately following the first anniversary of
the Issuance Date and ending on the second anniversary of the Issuance Date, $25
million and (C) during the period commencing on the calendar day immediately
following the second anniversary of the Issuance Date and ending on the Maturity
Date, $45 million.

     

    (cc)         "Permitted Liens" means (i) any
Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen's
liens, mechanics' liens and other similar liens, arising in the ordinary course
of business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv) Liens
(A) upon or in any equipment acquired or held by the Company or any of its
Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
equipment, or (B) existing on such equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (v) Liens on property
of, or on equity interests or Indebtedness of, any Person (A) incurred by the
Company or any of its Subsidiaries solely for the purpose of financing the
acquisition of such Person or (B) existing at the time such Person becomes, or
becomes a part of, any Subsidiary; provided that such Liens do
not extend to or cover any property or assets of the Company or any Subsidiary
other than the property or assets acquired and the proceeds and products thereof
and were not incurred in anticipation of such Person becoming a Subsidiary; (vi)
easements, rights-of-way, municipal and zoning and building ordinances and
similar charges, encumbrances, title defects or other irregularities,
governmental restrictions on the use of property or conduct of business, and
Liens in favor of governmental authorities and public utilities, that do not
materially interfere with the ordinary course of business of the Company and its
Subsidiaries, taken as a whole; (vii) any option or other agreement to purchase
any asset of the Company or any Subsidiary the purchase, sale or other
disposition of which is not prohibited by any other provision of this Note;
(viii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any of
its Subsidiaries in the ordinary course of business of the Company or any of its
Subsidiaries; (ix) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (i) through (viii) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Liens and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, (x) leases or subleases and licenses and
sublicenses granted to others in the ordinary course of the Company's business,
not interfering in any material respect with the business of the Company and its
Subsidiaries taken as a whole, (xi) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of custom duties in
connection with the importation of goods, and (xii) Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default under Section 4(a)(ix).

     

    
      
         


      

      
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    (dd)        "Person" means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

     

    (ee)         "Pill Rights" means any rights
issued by the Company pursuant to any so-called "poison pill" or similar Company
rights plan entitling all holders of equity interests of the Company to
subscribe for or purchase equity interests of the Company, which rights are not
exercisable until a determination by the Company's Board of Directors that one
or more Persons or "groups" (as defined in Rule 13d-5(b)(1) under the Exchange
Act) has acquired beneficial ownership of Common Shares in excess of the
percentage threshold specified in such plan.

     

    (ff)          "Principal Market" means The
NASDAQ Global Select Market.

     

    (gg)        "Redemption Notices" means,
collectively, the Event of Default Redemption Notices, the Change of Control
Redemption Notices, Holder Optional Redemption Notice and Company Optional
Redemption Notice, each of the foregoing, individually, a Redemption
Notice.

     

    (hh)        "Redemption Premium" means (i)
in the case of the Events of Default described in Section 4(a)(i) - (v) and
(viii) - (xiv), 115% or (ii) in the case of the Events of Default described in
Section 4(a)(vi) - (vii), 100%.

     

    (ii)           "Redemption Prices" means,
collectively, the Event of Default Redemption Price, Change of Control
Redemption Price, Holder Optional Redemption Price and Company Optional
Redemption Price, each of the foregoing, individually, a Redemption
Price.

     

    (jj)           "Registration Rights Agreement"
means that certain registration rights agreement dated as of the Subscription
Date by and among the Company and the initial holders of the Notes relating to,
among other things, the registration of the resale of the Common Shares issuable
upon conversion of the Notes and exercise of the Warrants.

     

    
      
         


      

      
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    (kk)           "Required Holders" means the
holders of Notes representing a majority of the aggregate principal amount of
the Notes then outstanding, but excluding any Notes beneficially owned, directly
or indirectly, by Mr. Lu (or any of his family members, affiliates or agents),
the Company or any of its Subsidiaries.

     

    (ll)           "SEC" means the United States
Securities and Exchange Commission.

     

    (mm)       "Securities Purchase Agreement"
means that certain securities purchase agreement dated as of the Subscription
Date by and among the Company and the initial holders of the Notes pursuant to
which the Company issued the Notes and Warrants.

     

    (nn)        "Subscription Date" means June
18, 2009.

     

    (oo)        "Successor Entity" means the
Person, which may be the Company, formed by, resulting from or surviving any
Fundamental Transaction or the Person with which such Fundamental Transaction
shall have been made, provided that if such Person is not a publicly traded
entity whose common stock or equivalent equity security is quoted or listed for
trading on an Eligible Market, Successor Entity shall mean such Person's Parent
Entity.

     

    (pp)        "Trading Day" means any day on
which the Common Shares is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Shares, then on the
principal securities exchange or securities market on which the Common Shares is
then traded; provided that "Trading Day" shall not include any day on which the
Common Shares is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Shares is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York
Time).

     

    (qq)        "Voting Stock" of a Person
means capital stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).

     

    (rr)          "Warrants" has the meaning
ascribed to such term in the Securities Purchase Agreement, and shall include
all warrants issued in exchange therefor or replacement thereof.

     

    
      
         


      

      
        - 36
-

        
          

        

      

      
         


      

    


    (ss)         "Weighted Average Price" means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York Time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as the Principal Market publicly announces is the
official close of trading) as reported by Bloomberg through its "Volume at
Price" functions, or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York Time (or such other time as such market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as such market publicly announces is the official close
of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted
Average Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Weighted Average Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder are unable to agree upon the
fair market value of such security, then such dispute shall be resolved pursuant
to Section 23.  All such determinations shall be appropriately
adjusted for any share dividend, share split, share combination,
reclassification or similar transaction during the applicable calculation
period.

     

    (32)         DISCLOSURE. Upon
receipt or delivery by the Company of any notice in accordance with the terms of
this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or its Subsidiaries, the Company shall within one (1)
Business Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Report of Foreign Issuer on Form 6-K or
otherwise.  In the event that the Company believes that a notice
contains material, nonpublic information relating to the Company or its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, nonpublic information relating to the Company or its
Subsidiaries.

     

    [Signature
Page Follows]

     

    
      
         


      

      
        - 37
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    IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.

     

    
      
        
          	
                  A-Power
      Energy Generation Systems, Ltd.

                
	 
      	 
      
	
                  By:

                	 
      
	 
      	
                  Name:

                
	 
      	
                  Title:

                


        

      

    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    EXHIBIT
I

    


    A-POWER
ENERGY GENERATION SYSTEMS, LTD.

    CONVERSION
NOTICE

     

    Reference
is made to the Senior Convertible Note (the "Note") issued to the
undersigned by A-Power Energy Generation Systems, Ltd., a company organized
under the laws of the British Virgin Islands (the "Company").  In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into Common Shares par value $0.0001 per share (the "Common Shares") of the
Company, as of the date specified below.

     

    
      
        
          
            
              	
                      Date
      of Conversion:

                    	_______________________________
	 
      	 
      
	
                      Aggregate
      Conversion Amount to be converted:

                    	_______________________________
	 
      	 
      
	
                      Please
      confirm the following information:

                    
	 
      
	
                      Conversion
      Price:

                    	_______________________________
	 
      	 
      
	
                      Number
      of Common Shares to be issued:

                    	_______________________________


            

          

        

      

    

     

    Notwithstanding
anything to the contrary contained herein, this Conversion Notice shall
constitute a representation by the Holder of the Note submitting this Conversion
Notice that, after giving effect to the conversion provided for in this
Conversion Notice, such Holder (together with its affiliates) will not have
beneficial ownership (together with the beneficial ownership of such Person's
affiliates) of a number of Common Shares which exceeds the Maximum Percentage
(as defined in the Note) of the total outstanding Common Shares of the Company
as determined pursuant to the provisions of Section 3(d) of the
Note.

     

    Please
issue the Common Shares into which the Note is being converted in the following
name and to the following address:

    


    
      
        
          
            
              
                
                  
                    	
                            Issue
      to:

                          	________________________________
	 
      	________________________________
	 
      	________________________________
	 
      	 
      
	
                            Facsimile
      Number:

                          	________________________________
	 
      	 
      
	
                            Authorization:

                          	________________________________
	 
      	 
      
	
                            By:

                          	________________________________
	 
      	 
      
	
                            Title:

                          	________________________________


                  

                

              

            

          

        

      

    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    
      
        
          
            	
                    Dated:

                  	 _____________________________________________________________________________
	 
      	 
      
	
                    Account
      Number:

                  	_____________________________________________
	
                      (if
      electronic book entry transfer)

                  	 
      
	 
      	 
      
	
                    Transaction
      Code Number:

                  	______________________ 
	
                      (if
      electronic book entry transfer)

                  	 
      


          

        

      

    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Conversion Notice and hereby directs
Continental Stock Transfer & Trust Company to issue the above indicated
number of Common Shares in accordance with the Transfer Agent Instructions dated
June 19, 2009 from the Company and acknowledged and agreed to by
Continental Stock Transfer & Trust Company.

     

    
      
        
          
            
              	
                      A-POWER
      ENERGY GENERATION

                      SYSTEMS,
      LTD.

                    
	 
      	 
      
	
                      By:

                    	 
      
	 
      	
                      Name:

                    
	 
      	
                      Title: